Rome’s famed Borghese Gallery is under threat. Home to some of the world’s finest masterpieces, the cash-strapped museum is suffering at the hands of Italy’s prolonged economic turbulence. The art gallery, like the country that proudly houses it, is crying out for a 21st-century renaissance.
Prime Minister Matteo Renzi is endeavouring to paint a brighter future for the Eurozone’s fourth-largest economy with a radical new method reminiscent of Caravaggio depicting himself as Goliath in the painting David with the Head of Goliath — essentially putting his neck on the line for the prosperity of his country’s economy.
Renzi has vowed to resign if his agenda to reform the Senate, a move he sees as crucial to unshackling Italy from economic restraints, is blocked. He says, “I have put all my credibility into this reform; if it doesn’t succeed, I can only assume the consequences.”
But his economic acumen and political savvy will be tested to the extreme in the coming months. Italy’s youngest prime minister at 39 has the unenviable task of dragging his country out of its deepest slump since the Second World War.
Renzi’s conundrum is brutally simple: unless Italy returns to growth, its debt will cripple any future prospects and render its membership of the Eurozone bloc untenable.
Rising debt
To put Italy’s fiscal plight into context, since the turn of the century, Germany and France have both achieved GDP growth of 15 per cent. Spain — one of the Eurozone’s worst affected victims — grew by more than 18 per cent, according to International Monetary Fund statistics. The Italian economy has not grown. It was smaller in 2013 than it was in 2000. Further still, GDP per capita has fallen almost 7 per cent in the same time frame.
Since 2010, Italy’s public debt has risen from 116 per cent to 133 per cent of its GDP. At the time of writing, Italy’s debt stood at €2.11 trillion (Dh7.74 trillion) — the second biggest in the Eurozone.
Confidence in the country’s economic clout has reached an all-time low, breeding a disaffected youth who see emigration as a viable alternative to forging a living in their country of birth.
Having declined 2.4 per cent and 1.9 per cent in 2012 and 2013 respectively — output finally recovered in the fourth quarter of last year, but only by 0.1 per cent — future Italian GDP growth looks better. It is forecast to grow 0.6 per cent this year, 1.15 per cent next year and 1.25 per cent in 2016. However, inflation will reach a historic low of 0.7 per cent in 2014 before rising to 1.2 per cent next year owing to increasing import prices, according to a European Union report published in May. Meanwhile, unemployment is set to rise to 12.8 per cent this year, and 12.5 in 2015.
Stefania Tomasini, Head of Analysis and Forecasting for the Italian economy at Prometeia, tells GN Focus in a statement, “In the short term, the speed of the recovery is the main issue ... and the most important thing is how to reduce the unemployment rate — we have now three million unemployed people.
“In the longer term, we have to reduce the public debt within the Fiscal Compact framework and at the same time close the negative output gap caused by the crisis. In particular, because of ageing population, Italy has to increase productivity growth,” she says.
Economic reform
Within weeks of taking over from former Prime Minister Enrico Letta, Renzi signalled his ambition to create a new, thriving Italy.
In March Renzi’s government laid out an ambitious package of economic reforms he claims will lay the foundations for greater structural change to come in an attempt to revive credit supply.
The budget plan included $14 billion (about Dh51 billion) worth of income tax cuts to target ten million of Italy’s low- and middle-income workers to put €1,000 a year back into their pockets. The cuts will be funded by spending reductions, one-off private bank windfalls and a reassessment of spending on Lockheed Martin fighter jets.
Commenting on the cuts when they were announced, Renzi said, “Today is the beginning of a general reorganisation of spending and of the relationship between the state and its citizens.”
He is confident there will be legislation in place by next month to ensure the public sector pays arrears of $93.5 billion owed to the private sector. The money, he stated, will come from spending cuts.
Renzi said Italy would keep within the 3 per cent budget deficit limit set by the commission. “There will be respect for all EU requirements. It is not a matter of flexibility in expenses, this is about the Italian state that decides how to spend its money respecting every single EU limit.”
Return of investors
Prospective foreign investors have been encouraged by Renzi’s proposed reform of Italy’s bureaucratic labour laws, which have often been criticised as an obstacle to money flowing into the country. Proposed changes to the law will allow temporary workers to work for 36 months rather than 12.
According to reports in the Financial Times, Italian-based businesses have enjoyed a rare flash of optimism, with investors returning to the Mediterranean.
In March, Roseneft, Russia’s biggest oil producer, became the largest single shareholder in tyre manufacturer Pirelli with a 13 per cent stake for $695 million. Roseneft has stated an interest in developing synthetic tyres for business use, which Pirelli will likely aid.
In the same month, Blackstone bought 20 per cent of Versace, South American investors Fintech Advisory and BTG Pactual bought nearly 7 per cent of Italy’s oldest bank Monte dei Paschi di Siena, and private equity fund Charterhouse bought Nuova Castelli, Italy’s biggest exporter of Parmesan cheese.
Further still, US fund BlackRock bought approximately 5 per cent each in four of Italy’s largest banks — UniCredit, Intesa Sanpaolo, Monte Paschi and Banco Popolare.
Italian exports are estimated to record double-digit growth through 2014 and become a key pillar of economic recovery beyond this year, according to the country’s National Statistics Institute Istat. >
Exports of manufactured goods will increase 10 per cent, with sales of services forecast to rise 7.5 per cent, according to an Istat report published last year. And SACE economic research forecasts that Italian exports will reach €539 billion by 2017 at an average annual growth rate of 7.3 per cent over the next four years. Total exports from Italy stood at $517.7 billion in 2013.
Complicated bureaucracy
“Exports will be the driving force of the recovery,” adds Tomasini. “The recovery in exports will improve investment perspectives — they are highly correlated in Italy. But a more neutral, expansionary fiscal policy is necessary in order to stop [a fall in] household consumption.”
Speaking to Time, Renzi outlined some of the symptoms of the political malaise he feels has afflicted its economic progression.
“We’re not a normal country because we have a complicated bureaucracy, a political system that’s appalling. We have twice as many parliamentarians as the United States. We pay some presidents of [administrative] regions more than the United States pays its president.”
For the Italian Prime Minister, getting the economy back on its feet will stem as much from political reform as from fiscal austerity.
